Globally, the family dairy farm is in trouble.
As New Zealand’s pre-eminent expert in not making a profit from a small-scale dairy farm, I’m perfectly qualified to explain the dramatic global demise of the family dairy farm.
In the United States, 57 per cent of dairy farms closed between 2000 and 2014. That’s 59,826 individual dairy farmers that went out of business.
This trend is not confined to the US. Over the same period, dairy herds reduced by between 36 and 76 per cent in Denmark, France, Germany, Italy, Spain, and the UK. Across the Tasman, the number of herds has halved.
This is not an indication of the demise of dairy, at least not just yet. All that’s happening is the smaller farms are closing and the remaining farms are getting much bigger.
The rules of economics are becoming apparent to the world’s dairy farmers.
In 2000, the average herd in the US was 88 cows. In 2014 it had risen to 204 cows per farm. Each cow is now producing 22 per cent more milk and global milk production has actually increased by about 5 per cent.
But US Department of Agriculture figures paint a bleak picture of the financial viability of US dairy farmers.
Farms with fewer than 200 cows lose NZ25 cents a litre. They stay afloat because the farmer is not paying themselves a market rate and they rely on unpaid family members to run the farm.
Herds ranging in size from 200 to 1999 cows are just breaking even.
The only profitable herds are those over 2000 cows with a small profit of NZ15c a litre.
The root cause of all this is farmers have a perishable product that needs to be processed in a timely fashion.
Once a cow is producing milk, the farmer needs to do something with the milk. They can’t store it or stop milking the cow and wait until prices improve.
This makes farmers reliant on the milk processors and retailers. The rules of business are that the party with the power squeezes everyone elses margins.
It’s worth noting, these figures include co-op farmers, so co-ops don’t necessarily change the power dynamics.
Over time, each sector of the supply chain has made gradual incremental improvements to efficiency.
They’ve followed the well-known rules of economics and business and embraced economies of scale. If you get bigger, you get more efficient.
That’s the problem.
Consumer research is clear. People really do not like factory farming and that’s what «bigger and more efficient» actually means – factory farming.
In one survey, researchers asked urban consumers what the ideal dairy farm looked like.
«Respondents cited the ideal dairy farm should be organic, small, operated by family farmers, and committed to contributing to their community,» they concluded.
But as the USDA numbers show, these types of farms lose money.
From a US consumer’s perspective, a profitable 2000-cow dairy farm is in the «dairy is scary» category.
If the only way dairy farming can be profitable is via a method that most consumers find abhorrent, you don’t need to be Ezekiel to see how dairy will be considered in 20 years time.
That’s why there’s never been a better time to be a small-scale dairy farmer.
The consumers of the world are more aware than ever and are crying out for authentic and transparent products.
A farmer with 80 cows can use farming methods a 2000-cow farm can’t. A farmer with 80 cows is more than happy to be transparent. The owners of a 2000 cow farm shudder at the thought of transparency.
All the evidence indicates that being small is a disadvantage and goes against the rules of economics and business.
But as author Paul Arden says, if you can’t solve a problem it’s because you’re playing by the rules.
Glen Herud is the founder of the Happy Cow Milk Company.